The Chancellor Alistair Darling has demanded Fred Goodwin, the former boss of
Royal Bank of Scotland, give up his £650,000-a-year for life pension or risk
it being clawed back legally.

Mr Darling made the plea after it emerged that the 50-year-old, who is blamed for RBS's record losses, is already claiming his massive pension.

The Chancellor told the BBC: "At my request, Lord Myners spoke to Sir Fred last night and quite simply asked whether in the circumstances that the bank is now in didn't you think it was right that you should forgo this?"

Sir Fred has yet to respond to the request.

Mr Darling said that lawyers for RBS and the Treasury were also exploring how they could claw back the money that Sir Fred will be able to claim each year until he dies.

But in a plea to the former bank boss Mr Darling added: "Sir Fred could resolve this problem and he could do it quite quickly."

The Government now owns just over 80 per cent of RBS having injected another £6.5 billion to prop up the bank. The Treasury also announced that the taxpayer will insure £350 billion of toxic assets in effect creating a 'bad bank' so that RBS is clearer about its own financial position and can start lending again.

It came as RBS announced a pre-tax loss of £24bn for 2008 - the biggest in UK corporate history. This included an £8bn trading loss and £16bn of write-downs on goodwill, mainly on its £63bn acquisition of ABN Amro. The previous record annual loss for a UK company was £14.9 billion.

RBS’s accounts also included a £16bn loss on the ABN assets bought by Belgian bank Fortis, bringing its total pre-tax loss to £40.7bn. RBS does not bear any risk from the Fortis losses, but they are consolidated on its balance sheet because it led the hostile bid for ABN in 2007 by the consortium made up of RBS, Fortis and Spain’s Santander.

Under the asset insurance scheme, RBS will be responsible for the first £19.5 billion of losses – or 6 per cent of the asset value. The taxpayer will bear 90 per cent of any losses after that, and RBS incur the remaining 10 per cent.

RBS will also shift £240 billion of non-core assets to a stand-alone division. These will be sold or run down over five years.

As many as 20,000 jobs could be lost after RBS said it planned to cut costs by £2.5 billion.

Mr Darling said the Government had to act to try and get RBS and other banks lending again and warned that not intervening would make the problems of the recession worse.

Stephen Hester, RBS chief executive, said: "I think that this is a very big and important move by the government."

He described the losses as "terrible" and said there would now be "a sweeping restructuring" which would attempt to "roll back excesses and get back to core business."

Mr Hester claimed that the "vast majority of the business was profitable last year."

The chief executive refused to comment on the revelation that his predecessor is already drawing a £650,000 a year pension beyond simply saying that the matter was agreed by the bank's previous board, the Government and Sir Fred.